Record US Supplies Push Crude Oil Below $50

Crude oil dropped below the $50 per barrel mark this week for the first time since December. That increased supply, which no one likes to see, and at the same time forecasts of demand also increased.

Baker Hughes said the total active U.S. rig count, which includes oil and natural-gas rigs, rose by 12 to 768 – that’s 58% higher than a year ago. The contract fell $0.09 to $48.40 on Monday, the lowest close since November 29.

This was expected. The U.S. rig count has steadily been trending upward. USA regular gasoline retail prices are forecast to average $2.40 per gallon in 2017 and $2.44 per gallon in 2018. Reports have indicated that the countries have been keeping up with their pledge, leading to some upside in the commodity early in the year. “However, the key to market performance this week is the response to the U.S. lift in rates”.

Things do not look too promising for oil prices right now. Extending OPEC’s cuts will accelerate the re-balancing of the market and help prices to return to “acceptable” levels, Kuwait’s Oil Minister Issam Almarzooq said, according to the official news agency Kuna.

In late November, investors rushed to make bets that prices would rise as OPEC hammered out its deal to cut production. These pacts were formed for six months (read: Top ETF Stories of the Fourth Quarter).

In December, OPEC members and other large oil producing, including Russian Federation, to cut crude output in a bid to cut oversupply and bolster prices. Iraq, OPEC’s second largest producer, however drilled above its quota in January, per the source. OPEC Secretary-General Mohammad Barkindo said that February compliance to the historic deal will be higher than January and shale producers have agreed that oversupply isn’t good for anyone.

“It’s a foregone conclusion that the Fed will raise rates, but there is an expectation that the central bank may raise their expectation from three hikes this year to four”, Michael Scanlon, portfolio manager at Manulife Asset Management, told Reuters.

On the upside, the first target is the main Fibonacci level at $50.26.

“Although Opec members may be commended on their attempt to stabilising the oil markets by cutting production, the fact that oil prices are nearly where they were when the initial production cut deal was announced is a major cause for concern”.

“The market will continue to watch for Opec compliance as United States production surges”, said David Lennox, a resources analyst at Fat Prophets in Sydney.

Traders seized the opportunity to profit from the deepening rout in oil prices using exchange traded funds. For the longer term, it is better to sit on the sidelines. If not Crude Oil heads due South.